Moody’s may downgrade several West Texas local governments because of the oil bust

Moody’s Investors Service has placed the ratings of 11 local governments in Texas — including the cities of Midland and Odessa — under review for possible downgrade.

Moody’s said it expects oil and gas industry conditions “will remain weak” and that local governments with a significant tax base exposure to the industry may face ratings pressure.

Moody’s placed 10 West Texas governments and hospital districts under review because of their financial exposure to the economic health of the Permian Basin, the state’s largest oil and gas field, as well as one school district located in the Eagle Ford Shale in South Texas.

“Certain issuers in the Eagle Ford and Permian regions benefited from rapid tax base expansions during the boom in oil production between 2010 and 2014,” Moody’s said. “Those that expanded services and debt issuance face a stressed operating environment as assessed values contract and local operators slash capital spending and cut workforces.”

The ratings review affects around $477 million of debt outstanding for all issuers, Moody’s said.

Moody’s placed one Eagle Ford Shale school district under review — Normangee Independent School District in Leon County, which is on the northeastern edge of the field. The others are cities, counties and hospital districts in West Texas.

Oil prices have crashed from a high of $107 in June 2014 to around $37 today.

The affected governments are:

  • City of Midland
  • City of Odessa
  • Pecos County
  • Iraan General Hospital District
  • McCamey County Hospital District
  • Midland County Hospital District
  • Nolan County Hospital District
  • Reagan Hospital District
  • Scurry County Hospital District
  • Seminole Hospital District
  • Normangee Independent School District

This ratings review will look at things that include an issuer’s ability to adjust to the downturn and credit quality characteristics such as liquidity, debt burden and management strategy, Moody’s said.

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